Property returns halve on softer market

The office market has seen vacancy rates rising due to over supply. PIC: KAGISO ONKATSWITSE
The office market has seen vacancy rates rising due to over supply. PIC: KAGISO ONKATSWITSE

Total returns in the investment property sector halved to 11.5 percent in 2014 down from 21.5 percent in 2013 on the back of a weaker market.

According to the IPD Annual Property Consultative Index released yesterday, the total return was underpinned by a relatively stable income return of 9.4 percent while capital growth slowed significantly to 2.0 percent from 10.2 percent the year before.

Total returns represent and aggregation of  income plus capital growth with the former reflecting increase in rentals while the latter denotes revaluations of properties.  

President of the Real Estate Institute of Botswana (REIB), Modiredi Maruping said the findings on the performance of Botswana property measured against 25 other countries, are largely in line with industry expectations and the general mood in Botswana.

He, however, stated that a total return in the double digits is still impressive as Botswana was ranked fifth out of the 25 countries.

“There has been a slow down in the market and it is reflected in these findings although it is for only six funds holding about P3.4 billion worth of real estate,” said Maruping. He stated that IPD is working on increasing participation of property holders so that the sample becomes more representative. He, however, said it is worth noting that valuers are more cautious of the market and that their sentiments echo well through the report.

Sethebe Manake, director of Vantage Properties, said the results this year reflect what they have already seen in 2014, a clear indication of pressure in the property market, with office feeling the most pressure, indicated by the increased vacancy rate of 7.7 percent.

She noted that the top performing sector in 2014 was still industrial, which has a strong upside in the near future, as the sector naturally lags behind the other sectors, “so we are not likely to see it dip as strongly as the other sectors”.

“The 3.3 percent rental growth rate is indicative of the underlying slow economic conditions.  The reduction in consumer spending naturally affects the performance of manufacturing and distribution sector,” she said.

She added that the lack of vacancies does indicate that fundamentally the industrial sector is still in a healthy space.  She said the other sector, which includes the hotel and tourism is doing fairly well, adding that it would be interesting to dissect the actual components that are able to deliver 15 percent total return. “It is to be noted that even though the index does cover P3.3 billion assets in capital value, these are only six property funds in the country which are professionally managed and may be indicating somewhat unbalanced perspective of the whole country,” said Manake.She further stated that a balanced image of real fundamentals would be better indicated when there are more funds and private companies with significant portfolios participating in the index.

On a global scale Botswana is still in the top 10 in total returns, at position five.

The latest IPD Botswana Annual Property Consultative Index, sponsored by Botswana Insurance Fund Management (BIFM), is based on asset level data collected from six leading local property investment portfolios.

First launched in 2012, the index measures ungeared total returns to directly held standing property investments from one open market valuation to the next and covered P 3.3 billion capital value at the end of December 2014.

The top-performing sector for 2014 was industrial property, which delivered a total return of 16.8 percent on the back of solid capital growth of 5.9 percent and income return of 10.3 percent.

The retail, office and residential sectors (a combined weighting of 83 percent in the index) all delivered between 10 percent and 11 percent total return. Although industrial rental growth slowed to 3.3 percent, a zero vacancy rate was recorded for the fourth successive year reflecting the robust fundamentals underpinning the sector.

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